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Companies Get Budgets All Wrong

The annual budgeting process leads to bad decision-making. It needs a total overhaul.

By

Kenneth A. Merchant

Updated July 21, 2013 4:01 p.m. ET

Almost all companies prepare a budget, or annual operating plan. And almost all companies do it wrong.

That shouldn't come as a surprise to managers, many of whom are highly critical about both the way budgets are prepared and the way they are subsequently used. The typical budget process, they say, mainly serves to distract managers from doing their jobs and to discourage them from taking risks. It undermines integrity, distorts...